Wednesday, 22 October 2014

Breaking Down the Barriers to Work

Now that the fuss over David Freud's thoughtless language in respect of disabled workers has subsided, it's worth considering what this little vignette tells us about attitudes to labour generally. The substantive issue was not the instrumentality of the former merchant banker, or the chutzpah of a life peer entitled to a daily attendance allowance of £300 musing on the viability of £2 an hour, but his willingness to consider a subsidy to business at a time when subsidies to the disabled (such as spare bedrooms) are being reduced in the name of austerity.

Though subsidy is generally a dirty word in political circles, being redolent of filthy French practices and the 70s, the diversion of tax revenues to business is a key characteristic of the neoliberal state. During the Thatcher/Major years, these subsidies took a variety of forms but were typically direct subventions to capital, such as preferential tax cuts, export credit guarantees and the like. During the Blair/Brown years, the emphasis shifted towards wage subsidies in the form of working tax credits and other in-work benefits. Though this directs the subsidy to workers, it serves to allow business to reduce payroll costs, hence it had to be augmented by the introduction of a minimum wage to limit the extent to which business could offload costs onto the state.

The difference between the main parties is less about preferring labour over capital and more about Labour preferring the subsidy to be managed centrally by the state, while the Tories prefer the subsidy to be managed decentrally by business, with some businesses benefiting more than others (hence the ideological tension between reductions in corporation tax, which favour big capital, and reductions in employer NICs, which favour small capital). A selective wage subsidy (the approach that Freud was willing to consider) is unlikely to find support with either party, which highlights the degree to which managerialists like Freud remain politically tone-deaf. For Labour, it undermines the national minimum wage, while for the Tories it opens up the prospect of businesses (particularly SMEs that abhor "diversity" as political correctness gone mad) being criticised for not hiring disabled workers when they are so "cheap".

Wage subsidies do not appear to boost employment generally, though they can help increase employment among targeted groups, such as the young or disabled. Rather than lowering the cost of labour and thus boosting employer demand for workers, selective wage subsidies appear to encourage substitution and the reduction of labour costs, thus boosting profit margins. A positive impact on aggregate demand is possible with a universal wage subsidy, but that would in practice be no different to an across the board subsidy to consumption, which could probably be achieved more efficiently via a basic income. The evolution of working tax credits and other benefits into a universal credit is one route by which that may come about.

An implication of the Freud gaffe is that there may be work currently not being done because it has a value lower than the minimum wage, however there is no evidence that this is so. When workers are paid a pittance, this usually reflects the strength of the employer not the marginal value of the work. Just as the introduction of the national minimum wage in 1999 did not destroy jobs, so the subsidisation of wages (through in-work benefits) did not bring a slew of previously uneconomic jobs into the labour market. Instead, it simply allowed many existing jobs to be kept at the minimum wage, thus boosting corporate profits.

Since 1999, the number of NMW jobs has doubled from 2.5% to 5% of the labour force, which translates into 1.2 million workers. That increase is not down to the weak post-2008 recovery alone. Rather there has been a steady increase since 2003 when the figure had dropped to 1.8%. Similarly, there has been a steady increase in jobs paid at marginally over the NMW, with those at up to 110% of the minimum now accounting for almost 12% of the workforce. If this trajectory continues, it will make future governments even more reluctant to significantly increase the minimum wage because of the quantum effect, which explains Ed Miliband's underwhelming promise to increase the main rate to only £8 by 2020.

I don't think Freud's clumsy language indicates that he is any more callous or stupid than your average unelected neoliberal chancer, rather it suggests that the political caste are only too well aware that we are building a low-wage economy in which the institutionalised dole, once directed to the unemployed and the unwilling, must in future be directed as much towards the employed and the willing. Increasingly, just having a job is no longer an indication of worth. As self-employment and piecemeal jobs proliferate, the boundary between work and non-work becomes ever more porous and the media dichotomy between strivers and shirkers ever more ridiculous.

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